HMRC have published 'Measuring Tax Gaps 2025', which says that small businesses failed to pay 40% of the corporation taxes that they owed in 2023-24. Overall, the tax gap estimate (the difference between what tax is expected to be paid and actually paid) was 5.3% for 2023-24.
Every year, HMRC estimate the tax gap using the most up-to-date information available, although figures may be revised as more data become available.
Key points were
- £46.8 billion was unpaid in the 2023-24 tax year. HMRC collected £829.2 billion, representing 94.7% of all tax due.
- Small businesses represent the largest proportion of the tax gap (60%).
- Corporation Tax accounts for 40% of the total tax gap.
- Failure to take reasonable care (31%), error (15%) and evasion (14%) are among the main behavioural reasons for the overall tax gap.
When the overall tax gap is broken down into its components, VAT, excise duties, Income Tax, National Insurance Contributions and Capital Gains Tax, Corporation Tax and other taxes, most of the components follow a long-term downward trend between 2005-06 and 2023-24.
The VAT gap has the largest proportionate decrease, falling from 13.8% in 2005-06 to 5.0% in 2023-24. The excise duties gap shows a smaller proportionate fall from 8.3% in 2005-06 to 5.8% in 2023-24. At the same time, the tax gap for other taxes has remained relatively constant at around 4%.
The figures for small businesses, defined as companies with turnover below £10m and fewer than 20 employees, were surprising.
- The share of the tax gap attributed to small businesses has increased over the last five years, from 48% of the overall tax gap in 2019-20 to 60% in 2023-24.
- HMRC collected £22bn of taxes from small businesses. HMRC estimated that £36.7bn was due, a shortfall of 40%.
For other sectors, HMRC has made improvements to their collection rates.
- The share of the tax gap attributed to large businesses decreased from 15% of the overall tax gap in 2019-20 to 12% in 2023-24.
- The combined share of the tax gaps attributed to individuals and wealthy individuals has changed little since 2019-20 and accounts for 10% of the overall tax gap in 2023-24.
- It is worth noting that earlier this year, the National Audit Office (NAO) Warned that the levels of tax evasion and avoidance by Britain's rich are likely to be much higher than HMRC estimates.
Useful guides on this topic
Wealthy tax dodging a bigger problem, says NAO
The National Audit Office's report, 'Collecting the right tax from wealthy individuals', warns that the levels of tax evasion and avoidance by Britain's rich may be much higher than HMRC previously thought. The complexity of their affairs allows for greater opportunities for dishonesty, the report concluded.
Allowances & rates: Capital Gains Tax (CGT)
What are capital gains? What is Capital Gains Tax (CGT)? What are the Capital Gains Tax rates, bands, reliefs and exemptions?
Capital taxes round-up: 2024-25
A round-up of developments in capital taxes for individuals for 2024-25 including some topical Capital Gains Tax (CGT) and Inheritance Tax (IHT) cases.
2025-26 Tax Data Card
A summary of key tax rates and allowances for 2025-26 and 2024-25.
External links
HMRC: Measuring tax gaps 2025 edition: tax gap estimates for 2023 to 2024